Audit estimates Kansas paid $700M in fraudulent unemployment claims, lawmakers say delays could’ve been avoided

TOPEKA, Kan. (WIBW) - A state audit blames historically high claims, rapidly changing programs, and badly outdated computers for why Kansas may have paid $700 million in fraudulent unemployment claims since the start of the COVID-19 pandemic.

“This has been a brutally, challenging issue to confront,” KDOL’s Deputy Secretary, Peter Brady said.

The Legislative Post Audit division Monday released the second part of its dive into unemployment issues at the Kansas Dept. of Labor. The first part of the audit, released in February 2021, estimated $600 million of the roughly $2.6 billion Kansas paid in state and federal unemployment benefits in 2020 could have been fraudulent. For Monday’s report, LPA says it used an advanced computer model, which estimated about $700 million (or 25 percent) of the $2.8 billion in unemployment benefits paid from January 2020 through February 2021 could have been fraudulent. They state $343 million in fraud was from federal funds, and $344 million from state funds.

LPA’s report did state it could be unlikely all the claims flagged in their estimate will end up being fraud. They also noted they were unable to use KDOL’s full 1099-G data as part of our estimate. The report also states the state prevented about $2 billion in fraudulent payments.

KDOL continues to maintain LPA used a flawed method, in assuming that all fraudulent claims were paid in order to arrive at its total.

The LPA report did not make any recommendations, noting a modernization effort for KDOL’s outdated computer systems is underway. Throughout the report, KDOL notes an antiquated system prevented KDOL from quickly implementing newly-authorized unemployment programs and policies under the federal CARES Act. In addition, a surge of claims overwhelmed the system. The state went from processing 3,000 initial claims in February 2020 to about 66,000 claims at the end of March - a roughly 22-fold jump in one month.

“The agency was tasked with doing this at a time and we were also trying to shift workplace to keep our employees safe,” Dep. Brady explained. “We were getting attacked, we were working to get new systems in place but while we’re doing that we were throwing everything including the kitchen sink at the fraud problem to stop any potential fraudulent payments.”

Legislators says some of these delays could have been avoided.

“Go to a manual process or do checks and balances that could’ve been to verify that that person was who they say they are, we were asking for that considerably,” Republican Sen. Caryn Tyson of District 12 said. “The fact that the federal government warned of the fraud coming, money was made available and it was not implemented until January, February the electronic checks that allowed us to decrease and cut those fraudulent claims.”

“My concern is how long it took since the 70s to update the computer system that caught up with this when the crisis came we weren’t ready, and a lot of people over a long period of time have to bear responsibility for that,” Democrat Rep. Vic Miller of District 18 said.

The LPA report also states issues getting through to KDOL’s call center may have delayed claims. According to the report, KDOL had just 33 fully trained customer service representatives answering calls in April 2020, when the agency recorded 12.5 million incoming calls for the month. However, despite adding staff, the report found the number of calls answered did not improve significantly. A chart in the report shows 70,000 calls answered in April 2020; 39,000 in May 2020; fluctuating between 54,000 and 57,000 through December; rising to 69,000 in January; then falling again to 39,000 in February 2021; increasing to 56,000 in April 2021, when calls fell to 3.3 million for the month.

KDOL said it is possible calls became more complex, which resulted in longer call times and fewer calls answered. In addition, they said not all of the contracted surge staff were assigned to answering phones.

KDOL says people waiting on claims should soon receive them - even with expanded programs ending September 4th, “if they are found out eligible for those weeks, they will be paid for those weeks, they will be paid out for any other supplements that are owed are outback as well.” Dep. Brady said.

KDOL said it takes six to eight weeks to train new staff members - they also point out not all the additional staff was assigned to answer phones..

Read the full audit report.

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